An UtiliPoint IssueAlert

By Patrick Reames
Vice President, Trading & Risk Management

When energy trading and risk management (ETRM) software first appeared in the post FERC 636 era, the applications were built around the best available technologies of the dayclient server architectures, relational databases and Visual Basic or PowerBuilder front ends. These applications were suitable for the times, sitting on an internal server and running over the client company’s internal network. The data and the program itself stayed within the physical confines of that company’s business.

Following the client server phase, new technologies came into vogue, like n-tier and Service Orient Architectures (SOAs), and Java and .Net, offering the promise of improved performance, improved ability to integrate with other applications, and, perhaps more importantly, the ability to deploy the applications directly over the internet, enabling what has become known as “Software as a Service” or SaaS.

Using the Web for Energy Transactions

For energy companies, the advent of the Open Access Same-time Information System (OASIS) and the development of the RTO markets in the mid 1990s essentially forced a broad acceptance of web-based transaction exchange. The standardization of OASIS functionality (and later, the mandated use of e-Tags) meant that companies operating in the markets had to accept that doing business in those markets meant using the internet to communicate with their business partners.

Still, there remains some resistance in trading shops to the idea of transmitting critical and proprietary data to an offsite server not owned or controlled by that company. Some organizations continue to hold the perception that someone could hack-into that third-party box, access the database and read or corrupt their critical data, crippling that data owner’s business. What’s not readily recognized is that the servers within most of the trading shops today are probably less secure than those sitting in a hardened data center operated by a SaaS provider that has developed the operating protocols and security measures necessary to legitimately operate in the space. Today, particularly for critical industries such as power generation and transmission, data center cyber security and protection is a top priority. The proper certifications, such as SAS 70, and compliance with industry standards such as the NERC CIP Standards, provide assurances for SaaS customers that their data is secure and that their system will be readily available.

Today, the Intercontinental Exchange, ICE, is the largest energy commodity exchange in the world and all its transactions are conducted via the web or via virtual private networks to its own data centers. Given ICE’s ubiquitous use by virtually all trading companies, it’s increasingly difficult for holdouts to make the argument that Web-based transmission and third party storage of sensitive data is too risky to employ.

With energy markets’ participants increased exposure to web-based technologies, such as ICE, more and more are accepting of SaaS solutions for their critical business software. In our market research, UtiliPoint has seen annual double digit growth in the SaaS ETRM markets over the last several years, and we are forecasting that growth to continue, even in an otherwise potentially slowing market.

With the acceptance and adoption of SaaS solutions, companies are finding numerous advantages in relieving themselves of the burden of housing and maintaining these critical applications. Amongst those advantages:

- Limited or no hardware investments
- Reduced maintenance costs
- Standardized XML based integration points yielding potentially faster implementations
- Nearly transparent product upgrades-reduced cost, time, and pain

While SaaS does provide a number of benefits, it’s not without its perceived drawbacks. In particular, if a company wants a highly customized solution to fit a particularly unique business process, maintaining those customizations in a hosted, web-delivered system has the potential to erode the value of the model.

OATITHE SaaS Success Story in Energy

While almost all ETRM vendors will advertise their ability to deliver their applications via the web, only a few have architected their products specifically for SaaS delivery. In fact, most will utilize a technology such as Citrix to “Web enable” their products.

One of the earliest solutions companies to adopt the SaaS business model for product development and delivery was Open Access Technology International (OATI). With the opening of the RTO markets, the deployment of OASIS in the transmission markets and the evolution of e-Tagging, OATI, founded in 1995, began providing the technologies and products required by market participants. The company’s web based solutions quickly became the standard for the vast majority of regional power market participants.

Since that time, the company has grown to be one of the largest players in the energy technology space (and the largest vendor of dedicated SaaS energy solutions), providing products in energy trading and risk management, NERC compliance, congestion management, transmission management, and smart grid development and management. However, despite their breath of solutions, there’s a chance you may not have heard of them as the company has accomplished all that it has without much investment in marketing. As they will readily admit, they’ve historically relied more on word of mouth to sell their products, believing that success breeds success, and apparently it has.

Despite their low profile in the market, the list of accomplishments for this company is impressive. Consider these facts:

- The company has over 650 active customers for their various products
- They handle over 96 percent of the e-Tagging in the North American market
- They’ve deployed their RTO market solution 116 times
- They’ve deployed their ETRM solution at more than 65 companies
- The company has over 80 percent of the Transmission Providers utilizing their transmission management, scheduling and OASIS solutions.

As Jerry Dempsey, OATI’s vice president of sales and marketing says, “We’ve focused our efforts on building an organization that is 100 percent dedicated to providing the highest value to our customers by utilizing the best available technologies to solve extremely complex business problems. We know that by delivering on that strategy, the market will be there for us.”

“The SaaS model has proven very successful in delivering on that strategy. Our customers have been able to achieve superior value on their investment and are assured that the products they are using will always be up to date with the ever changing energy markets.”

According to Mr. Dempsey, while OATI’s products can be delivered on servers located within their customers’ facilities, in almost all cases customers have elected to use OATI’s dedicated hosting facility. “For clients that want a more customized solution, even for some very large customers, we’ve been able to demonstrate that our SaaS model can provide that uniquely customized solution in a fully hosted environment. It’s the same effort whether the system is hosted or delivered. Customers recognize the benefits of a SaaS model. Yet some customers do elect for a delivered solution over a hosted solution mostly due to lack of experience of SaaS or the strong desire to simply retain the solution within their own facilities.”

OATI’s hosting facility is one of a kind for an energy solutions vendor, providing not only application hosting, but also managing almost all of the thousands of e-Tags that are transmitted every day in the North American power markets. In all, their data center manages over 80 terabytes of data on a daily basis.

I recently had the opportunity to visit the company’s headquarters in Minneapolis and tour their data center, which, from the outside is a rather unassuming building on the west side of the city. However, as you pass through a very robust security process, the unassuming label quickly drops away. OATI is very serious about their facility and have built a state of the art data center by essentially constructing a hardened bunker within the building, one equipped with its own utility feeds and back-up systems, operating independently from the outside facility.

“Our data center is the heart of our business. Our customers, including most of the power industry, rely on us to ensure that their data is safe and their business critical applications are available. We are constantly working to ensure that our facility remains state-of-the-art and is the most secure and reliable in the market. We’ve worked hard to maintain SAS 70 and NERC CIP compliance, and we take pride in that we are the only energy technology vendor to have achieved that compliance with their own 100 percent dedicated data center,” said Dempsey.

Good News for Other Vendors

For vendors of SaaS products, OATI’s story should be heartening, for it clearly indicates the growing acceptance of internet delivered solutions in the energy markets. Their continual success in selling, deploying, and maintaining SaaS solutions is one of the most persuasive arguments in tearing down perceived barriers to web-based ETRM products.